An investigation by the official competition watchdog is expected to conclude that government-owned bodies compete unfairly in the market in public sector information.

Papers seen by the Guardian suggest that the Office of Fair Trading (OFT) has found examples of public monopolies fixing prices and taking advantage of inside information to drive innovative private competitors out of business. The OFT said it expects to publish its report this autumn.

If the report reflects the briefing paper's concerns, it will fuel a growing debate about the government's policy of earning money by selling information collected at public expense. Guardian Technology's campaign argues that this policy stunts innovation, and that publicly held data should be freely available to all.

According to a briefing document prepared for focus groups, copies of which have been seen by the Guardian, the OFT is midway through its market study into the commercial use of public sector information. The study's main concern is whether organisations creating data - known as public sector information holders (PSIHs) - have an unfair advantage when they sell products in competition with private businesses.

Number of issues

The briefing document's tone suggests that the answer is likely to be yes. It lists nearly 30 issues that have been brought to the OFT's attention. These include:

· conflicts between government policies that require organisations to stand on their own feet commercially while trying to open access to data. Such tensions "result in seemingly conflicting guidance and create difficulties for PSIHs";

· lack of consistency and transparency in public accounts. "Not all PSIHs have accounting systems that allow them to allocate costs sufficiently," says the document.

The OFT finds several ways in which public bodies may be acting unfairly. One is by classifying core data collected as a by-product of their tasks as "value added", and thus not making it available free (as public bodies are obliged to by the Office of Public Sector Information).

This appears to refer to a dispute over whether postal addresses should be classed as "core" or "value-added" information. It also reports that "PSIHs sometimes sell information in bundled form without selling the different components separately. This may be too expensive for businesses only wanting to use a small part of the data. This may inhibit innovation."

Public sector information holders are also accused of holding a cosh over competitors when negotiating licences. "Negotiations over supply are complex, and there is a lack of certainty about decisions... which may be reversed at a later date after the business has invested time and money." There is also concern that some public bodies ask licensees to provide their business models as part of the deal: "This allows the PSIHs to gain a knowledge advantage and can also be problematic for businesses that do not yet know on what terms the data will be supplied."

The briefing paper raises questions about the way public agencies price their information. These include a "hidden form of taxation", when unrefined data is priced to raise more money than it cost to collect.

Furthermore, "some PSIHs may be supplying their downstream arms at more favourable rates than private sector competitors", the OFT suggests, but says this is difficult to determine without knowing exactly how costs are allocated. "If [organisations are doing] so, they will be restricting the ability of business to compete." Where prices for refined products and services are not related to costs they may be set below costs and drive competitors from the market.

Complaining about such tactics can be risky, the document suggests. "Some PSIHs say they will stop supplying businesses that complain while the complaint is being considered." While the PSIH could argue that this avoids exacerbating the situtation, it could also be seen as a threat to cut off the supply of essential data.

Finally, the report suggests there is unhappiness with the government's regime for trying to ensure fair play, through the OPSI. It finds that the office's "information fair trader scheme" does not test public sector bodies sufficiently rigorously.

It warns that the "light touch" regime favoured by the government "may not be adequate given the issues listed". Today, the office does not have the resources to cover the large number of PSIHs and lacks sanctions and remedies for dealing with bodies that break the rules.

The document stresses that "these are early findings and we are still in the process of verifying evidence and may need to re-examine our views". Neither does the OFT, an independent body answerable to parliament, have powers to change government policy. However, the document says that the final report will point out inconsistencies in the present approach and "clarify the broad policy options". It may make uncomfortable reading for senior ministers who rely on a rigged market in public sector information to balance the public books.

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